4 Legal Reasons For Employee Handbooks

If you own or manage a business, you’re probably familiar with employee handbooks. Employee handbooks contain information on your business’s culture, policies and procedure. They can be a good tool to communicate your mission to your employees and “sell” the benefits of employment. They can also be a good tool to minimize your company’s legal risks. Here are the top four legal reasons your business should have an employee handbook.

Adam Wogsland is a business attorney with SW&L Attorneys in Fargo. Adam has helped many businesses in a variety of industries create, revise and apply employee handbooks. He also has firsthand business experience creating, revising and applying employee handbooks.

REASON NO. 1:

Whether you know it or not, your business already has policies about everything related to employment, including wages, salaries, overtime, bonuses, commissions, paid time off, family leave and equipment use. Your business’s policies might live exclusively in your memory. They might live in the company’s collective memory. They might live in a set of email directives. The policies might just be made up on the fly.

If the policies are by memory or assembled loosely, they will likely be applied inconsistently. This leads to disputes related to interpretation. Inconsistent application and disputes can lead to morale issues (bad), legal claims (worse) or liability (worst). An employee handbook formalizes the business’s policies. Your business should have each employee acknowledge his or her review of the handbook. While there are still risks with inconsistent application and interpretation disputes with an employee handbook, the risk is greatly reduced. Major business transactions are memorialized in signed contracts for the same reason. Memories fade, recollection becomes an issue and people have biases. Interpretation becomes an issue. Some interpretation issues are genuine, and some are not. An employee handbook reduces the risk of recollection and interpretation issues, which in turn reduces the risk of disputes.

An employee handbook minimizes the risk of employment policy disputes.

REASON NO. 2:

An employee handbook helps you reduce the risk of claims.

By claims, I mean disputes that have entered the legal or administrative process. Legal claims come in the form of state and federal court actions. Administrative claims include those handled by the North Dakota Department of Labor, Job Service North Dakota, the Minnesota Department of Human Rights and the United States Department of Labor. Employment lawyers, departments and commissions should be on your business’s list of things to avoid. Claims are expensive and they take time, attention and resources. An employee handbook can help you reduce the risk of claims. This is best explained through several examples.

Example #1
If your employee handbook has a clearly defined social media policy regarding what can and cannot be posted on social media, you might save yourself a defamation claim because a new employee thought twice about sending that tweet on company time with company property.

Example #2
If your employee handbook has clearly defined standards for approving overtime, your business might save itself from a Fair Labor Standards Act wage and hour claim because the employee thought twice about working a 75-hour week before going through the proper channels. Minimization of claims works both ways, too. You want to minimize the claims your business has to make as well. Lawyers cost money whether you are prosecuting or defending a claim.

Example #3
If your employee handbook clearly defines what is and what is not company property, your departing employee may think twice about dropping your business’s proprietary data and trade secrets onto a USB drive before walking out the door. An employee handbook will not help your business completely avoid claims, but it should help reduce them.

REASON NO. 3:

An employee handbook helps your business resolve disputes before they become claims.

Disputes are an unavoidable part of business. Some disputes are resolved, while others become claims. An employee handbook should clearly define complaint, investigation, evaluation and response process. For example, let’s say an employee has a legitimate complaint related to discrimination. Without a complaint procedure defined in an employee handbook, the employee may not know where to turn to report the issue. The employee may not report it at all for fear of retribution or retaliation by management, the employee’s supervisor or the employee’s coworkers.

Without a defined evaluation-and-response process, the employee might not have faith in the internal process. Without reporting the issue, owners or high-level management may not even be aware of it. Your business might not have a shot at preventing the dispute from becoming a claim. Your business might lose a quality employee and not be aware of the damage caused by a misbehaving employee because the process was not clearly communicated to the workforce. Now your business has claims and the employment lawyers, departments and commissions that come with claims.

REASON NO. 4:

An employee handbook helps your business defend against claims.

If your business has been sued or a file has been opened at one of the departments, I’m guessing you will want to win. An employee handbook can help in several ways. First, if your business has an employment practices liability policy, they can dovetail together to make sure your business gets coverage for the dispute. Second, if the employee doesn’t follow the procedure laid out in the employee handbook, then your business is in a better position to defend against liability.

Again, this is explained best through example. For instance, employee handbooks should have a mechanism for a prompt, thorough and impartial internal investigation into alleged sexual harassment. Very generally speaking, under federal law, an employer has an affirmative defense against a Title VII sexual harassment claim if (1) employer undertook reasonable care to prevent and promptly correct harassment and (2) the employee fails to take the opportunity offered by the employer to avoid or correct the harm. The intricacies of Title VII of the Human Rights Act could be its own article, so I will just leave it at this very general level. The point is that an employee handbook can help prove up the first element of the affirmative defense.

If the employee doesn’t follow the procedure laid out in the employee handbook, then your business is in a better position to defend against liability.

Without it, you might still be able to prove the first element but with greater difficulty. If your employee handbook establishes that reasonable care by providing a complaint and investigative procedure and the employee ran to federal district court and sued your business before utilizing the procedure, then your business would have a strong defense to the claim.

Please note that employee handbooks are only as good as their application. Creating one and putting it in a drawer won’t benefit your business. Both employers and employees should be familiar with it and review it at least annually. Businesses should use it and update it as the circumstances change. They should also update handbooks in response to any employment issues that did not already squarely fit within the handbook language.

This article is not legal advice. Employee handbooks are not a do-it-yourself project. They are not a form you simply download on the internet. You should hire a licensed attorney to assist you with your employee handbook. Poorly drafted employee handbooks will create unintended legal consequences. In other words, your DIY employee handbook will cost you more time and money than it saves.

What do you think?

Adam Wogsland is a business attorney with SW&L Attorneys in Fargo. Adam has helped many businesses in a variety of industries create, revise and apply employee handbooks. He also has firsthand business experience creating, revising and applying employee handbooks.